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Are Kroger's Wal-Mart Concerns Overblown?

Oppenheimer said the recent pullback in The Kroger CoKR shares creates an attractive opportunity, while adding that concerns of more aggressive actions from Wal-Mart Stores, Inc.WMT seem overblown.

The brokerage, which has an Outperform rating on Kroger, is "incrementally more positive" on Kroger's longer-term prospects, ability to sustain its leading competitive position and probability of taking share despite the entry of new peers within the grocery space.

Oppenheimer said meetings with management suggested a generally stable backdrop in grocery, and the firm is increasingly confident in Kroger's ability to capture its fair share of digital growth over time, whether through Click and Collect initiatives or home delivery.

"The tone of management remained positive on both the nearer and longer term prospects and ability to adapt to changing consumer purchasing preferences," analyst Rupesh Parikh wrote in a note.

Parikh noted that if Roundy's Inc NYSERNDY's acquisition is successful, the company could acquire other lower quality/underperforming assets in other markets that it may have historically shied away from.

Further, the analyst highlighted that Kroger still has a long list of opportunities to drive both revenue and productivity improvement through technology initiatives.

"The power of KR's data analytics continues to separate the company vs. peers and gives us confidence in the chain's ability to ward off new and existing competitive threats," Parikh concluded.

At time of writing, shares of Kroger were up 0.32 percent on the day to $37.51.

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